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Indian Hotels: Exceptional gain boosts bottomline - Views on News from Equitymaster
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Indian Hotels: Exceptional gain boosts bottomline
Aug 28, 2015

The Indian Hotels Company Limited (IHCL) has announced its results for the first quarter of FY16. On a standalone basis, the company has reported 14% YoY increase in net sales and a net profit of Rs 511 m. Here is our analysis of the results.

Performance summary
  • Net sales for 1QFY16 increased 14% YoY. The topline increased 10.2% YoY on a consolidated basis.
  • The standalone operating profit increased 15.5% YoY in 1QFY16. Savings in fuel costs led to the improved operating margins. The consolidated operating profit was up 32.8% YoY.
  • The company has exited a subsidiary Tata Projects Ltd. This was largely responsible for the exceptional income in the quarter.
  • Helped by the exceptional income, the company reported a net profit of Rs 511 m on a standalone basis and Rs 348 m on a consolidated basis.

Standalone and Consolidated financials
  Standalone Consolidated
(Rs m) 1QFY15 1QFY16 Change 1QFY15 1QFY16 Change
Net sales 3,978 4,535 14.0% 9,375 10,329 10.2%
Expenditure 3,621 4,122 13.8% 8,572 9,264 8.1%
Operating profit (EBDITA) 357 413 15.5% 802 1,065 32.8%
Operating profit margin (%) 9.0% 9.1%   8.6% 10.3%  
Other income 112 269 141.0% 169 293 72.9%
Finance costs 247 213 -13.8% 445 443 -0.5%
Depreciation 297 295 -0.8% 698 740 6.0%
Exceptional item (46) 493   (61) 488  
Profit before tax (121) 668   (232) 663  
Tax (50) 157   11 210 1828.4%
Profit after tax/(loss) (71) 511   (243) 453  
Minority interest - -   (77) (83.8)  
Share of associate's profit/(loss) - -   (28) (21)  
Net profit/(loss) (71)  511    (348)  348  
Net profit margin (%) -1.8% 11.3%   -3.7% 3.4%  
No. of shares (m)         807.5  
Diluted earnings per share (Rs)         (3.8)  
P/E ratio (x)*         N.A  
*On trailing 12 months basis

What has driven performance in 1QFY16?
  • IHCL's standalone revenue for 1QFY16 increased by 14% YoY due a minor improvement in room rates as well as, occupancy rates (OR).

    Cost break-up
      Standalone Results Consolidated Results
    As a % of sales 1QFY15 1QFY16 1QFY15 1QFY16
    Cost of goods 9.7% 9.8% 10.8% 11.3%
    Staff costs 30.2% 30.5% 37.5% 36.9%
    License fees 6.0% 6.4% 4.7% 4.9%
    Power, fuel & light 11.3% 10.5% 8.7% 8.1%
    Other Expenditure 33.8% 33.7% 29.7% 28.4%

  • IHCL's standalone operating profit increased by 15.5% YoY. The operating performance in the quarter was boosted by the fall in fuel prices.

  • The bottomline was boosted by the gain on sale of the company's subsidiary.
What to expect?

In 1QFY16, the sale of the investment in Tata Projects enabled the company report profits. However, the operating profits still don't cover interest costs and the company's capex requirement. The company continues to divest the expensive overseas investments made during the past several years. We believe this is a long drawn out process and what is of greater importance is the company's operating margins. On this front, the standalone business is plagued by overcapacity in the country. This is unlikely to improve anytime soon. Also, it must be kept in mind that the company is still adding capacity although the incremental room additions are not very significant.

Keeping in mind the muted financial prospects (at least in the near term), the uncertain economic outlook of the developed world as well as the stock's valuations, we maintain our view that investors should not buy the stock at current levels.

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